The TSX parent company has ambitious goals for global expansion and data revenue growth

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The S&P TSX composite index screen at the TMX Market Center in downtown Toronto on November 11, 2022. Tijana Martin/The Canadian Press

Canada’s main exchange operator plans to generate the majority of its revenue from foreign and traditional exchange business.

TMX Group Ltd., XT, which owns the Toronto Stock Exchange, the TSX Venture Exchange, the Montreal Exchange and the TSX Alpha Exchange, late Monday announced three long-term “transformational goals” along with ‘ broadly consistent financial results for the last three months of 2022.

The new targets, which TMX expects will take a decade or more to fully achieve, come amid analysts’ concerns about the company’s near-term ability to grow earnings. under persistently volatile market conditions.

TMX aims to generate more than half of its revenue outside of Canada and an equal share from its market data business. Today, no segment accounts for more than a third of sales.

TMX Group sees an increase in revenue and earnings in the fourth quarter of 2022, the full year

The company also aims for two-thirds of all annual revenue to be recurring, such as annual listing fees and data subscriptions. This would be an increase of about 50 percent today.

In the most recent quarter, 44 percent of TMX’s revenue came from trading, clearing and settlement services, which are highly sensitive to fluctuations in market conditions.

“In these pieces of transformation, we are seeing the long-term transformation of the business towards more global, recurring and more data revenue,” said CEO John McKenzie in an interview about the strategy. “We wanted to show what long-term success looks like.”

The company plans to grow its market data business faster than in the past, McKenzie said, in part through acquisitions. In November 2022, TMX purchased Boston-based corporate events Wall Street data provider Horizon for an undisclosed sum. In January, the company paid $175 million for a 21% stake in New York-based VettaFi LLC, which provides data and analysis services related to exchange-traded funds and global indexes.

TMX also plans to lean heavily on another relatively recent acquisition to boost sales in the near term. In 2017, the company bought London-based wholesale energy platform Trayport Ltd. to nearly $1 billion, and price increases for Trayport customers, which took effect late in 2022, are expected to increase overall sales by 7 percent to 8 percent in 2023 .

Mr. McKenzie hopes that such growth prospects will offset investors’ concerns about market volatility after what he described as a “turbulent and difficult” 2022 in a conference call on Tuesday morning. He also acknowledged during the conference call that “some of these challenges will remain in the last weeks of 2023.”

Scotiabank analyst Phil Hardie, who covers TMX with a price target of $160 per share and the equivalent of a “hold” rating, is among those urging investors to stay on the sidelines . In a note to clients on Tuesday, Mr Hardie said he expected TMX to post year-over-year declines in earnings per share – a key measure of profitability – over the next three quarters before rebounding back to growth.

The issue, said Mr Hardie, “relates to the uncertainty in the medium-term outlook for capital markets activity and what the ‘new normal’ for trading and financing might look like due to volatile market conditions.”

In response, Mr McKenzie said he understood that kind of hesitation, but that it was “one of the interesting resiliences in our business model. [is that] Different market conditions can be head-on in some areas of the business and head-on in others.”

For example, rising interest rates have been a headwind in terms of valuation and transaction pricing, he said. However, they were positive for the TSX Trust business, which provides transfer agent and custodian services. According to National Bank Financial, for every quarter percentage point increase in the Bank of Canada overnight rate, the TSX Trust’s annual income will increase by approximately $2.5 million.

“Even in the capital raising business, debt refinancing is now more expensive than it used to be and the equity alternative looks more attractive when we are in a market of persistently higher interest rates,” said the -Mr McKenzie.

“All these parties now have headwinds and tailwinds as well, which has made our business much more resilient in 2022 than it was in 2012.”


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